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Shell favours gas over oil for future production strategy

Daily Telegraph

Gas will be at the heart of Royal Dutch Shell’s production strategy ahead of oil as the world attempts to reduce carbon dioxide emissions, according to the energy group’s new chief executive, Peter Voser.

By Rowena Mason
Published: 8:17PM GMT 24 Nov 2009

Delivering an update on Shell’s two flagship gas projects in Qatar, which are costing the group $21bn (£12.6bn), Mr Voser admitted that one – a liquiefied natural gas (LNG) plant – would overrun by about 10 months.

However, he said construction was on track for Pearl, the other development, to start producing in 2011. It will be the world’s largest gas-to-liquids facility when completed, having spiralled in cost from $5bn to $19bn since 2003.

Both projects will lift Shell’s output by 10pc – or 350,000 barrels per day – and contribute $4bn per year in revenues. “Qatar is key to Shell’s revival,” one analyst from Deutsche Bank said.

Increased capital expenditure is part of a turnaround strategy implemented by Mr Voser that will also see Shell shed 5,000 jobs and ramp up production.

Despite Shell’s history as Europe’s largest oil company, Mr Voser made it clear that gas production would overtake oil production by 2012, as 1bn electric cars hit the world’s roads over the next few years. A few years ago, Shell’s production was split 60:40 in favour of oil.

The International Energy Agency has forecast a gas glut and depressed prices until 2015, but Mr Voser insisted the medium to long-term outlook for demand was strong.

“We are intensifying our gas production because clearly it is the fossil fuel that has the lowest carbon dioxide content,” he said. “We will be more than 50pc gas by 2012 and increasing afterwards.”

The company will add 1m barrels per day to capacity by the end of 2012 – a growth rate of 2pc. But Mr Voser said that while Shell was impressed by the Nigerian government’s efforts to ensure a ceasefire in the troubled Delta oil region, the company would no longer aim for growth in the area.

The chief executive said Alaska could be the “next big area” for oil producers, adding that Shell would deliver proposals to Russia for a major gas development in Yamal by next Spring and is still negotiating on the Kirkuk oil field with the Iraqi government.

He also emphasised the potential of carbon capture and storage technology as key to Shell’s strategy to mitigate emissions from fossil fuels.

Mr Voser ranked it as the most important issue to be discussed at the Copenhagen climate change summit next month, but warned that Europe and the UK are losing leadership in this area as a result of being slow to grant funding and subsidies.

He also admitted for the first time that Shell would accept a minimum price on carbon credits to incentivise investment in clean energy. He said it ought only to be used in the early years of a global system.

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